Federal Circuit Rejects E.D. Texas Patent Venue Test

In its first decision addressing patent venue since the Supreme Court’s ruling in TC Heartland LLC, the Federal Circuit struck down the patent venue test established by Judge Gilstrap of the U.S. District Court for the Eastern District of Texas. The Federal Circuit concluded that the district court “misunderstood the scope and effect” of Federal Circuit precedent in determining that patent infringement defendant Cray Inc. has a “regular and established place of business” in the Eastern District of Texas under the patent venue statute 28 U.S.C. § 1400(b) and abused its discretion in refusing to transfer venue. In re Cray Inc., No. 2017-129 (Fed. Cir. Sept. 21, 2017). In doing so, the Federal Circuit provided highly-anticipated clarification of what constitutes a “regular and established place of business.”

Below, Raytheon Company sued Cray for patent infringement in the Eastern District of Texas, and Cray subsequently moved to transfer the case to the Western District of Wisconsin. Raytheon Co. v. Cray, Inc., No. 2:15-cv-01553-JRG (E.D. Tex. June 29, 2017). Despite the fact that Cray is a Washington corporation and neither owns nor leases offices or property in the Eastern District of Texas, the district court determined that the presence of a Cray sales executive working from home within the district, who received reimbursement for certain charges and advertised his phone number within the district, constituted a regular and established place of business. Cray, slip op. at 2-3 (citing Raytheon Co. v. Cray, Inc., No. 2:15-cv-01553-JRG, 2017 WL 2813896, at *1-2, 6 & n.1 (E.D. Tex. June 29, 2017) (“Transfer Order”). The district court, therefore, denied Cray’s motion to transfer and went on to set out “four factors for inquiries into what constitutes a regular and established place of business ‘in the modern era,’ including physical presence, defendant’s representations, benefits received, and targeted interactions with the district.” Id. at 4 (citing Transfer Order, 2017 WL 2813896, at *11-14). While the district court did not expressly apply its four-factor test in this case, it indicated that had it done so, the result would remain the same. Id. (citing Transfer Order, 2017 WL 2813896, at *14 n.13). Cray then petitioned for a writ of mandamus directing reversal of the district court’s denial of its motion to transfer. Id. at 4.

In reviewing the district court’s analysis of whether Cray has a “regular and established place of business” in the district under § 1400(b), the Federal Circuit found that “[t]he district court’s four-factor test is not sufficiently tethered to this statutory language and thus it fails to inform each of the necessary requirements of the statute.” Id. at 10. In place of the district court’s test, the Federal Circuit laid out three general requirements relevant to the inquiry: “(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant.” Id. at 8. The Court stressed that the requirements set forth “inform whether there exist the necessary elements but do not supplant the statutory language” and “that the analysis must be closely tied to the language of the statute. Id. at 10-11.

With respect to the first requirement—“a physical place in the district,” the Federal Circuit determined that “[t]he district court erred as a matter of law in holding that ‘a fixed physical location in the district is not a prerequisite to proper venue,’” id. at 11 (quoting Transfer Order, 2017 WL 2813896, at *11), and that “[t]he statute cannot be read to refer merely to a virtual space or to electronic communications from one person to another.” The Court noted that “[w]hile the ‘place’ need not be a ‘fixed physical presence in the sense of a formal office or store,’ there must still be a physical, geographical location in the district from which the business of the defendant is carried out.” Id. at 11 (internal citations omitted).

With respect to the second requirement—“that the place ‘must be a regular and established place of business’”—the Federal Circuit found that the district court’s test “fails to recognize that the place of business be ‘regular’” as opposed to sporadic, which is further bolstered by the “established” limitation of the statute.

With respect to the third requirement—that “the regular and established place of business” must be “the place of the defendant”—the Federal Circuit acknowledged that “[t]he district court is correct that a defendant’s representations that it has a place of business in the district are relevant to the inquiry” but emphasized that “the mere fact that a defendant has advertised that it has a place of business or has even set up an office is not sufficient; the defendant must actually engage in business from that location.” Id. at 13-14. The Federal Circuit summarized that “the court must identify a physical place, of business, of the defendant.” Id. at 14.

Applying these requirements to the facts of the case, the Federal Circuit underscored that the third requirement above “is crucial here” and determined that the facts cannot support a finding that the sales executive’s home was a “regular and established place of business of Cray.” Id. at 15 (emphasis in original). Rather, the Court noted that the facts here “merely show that there exists within the district a physical location where an employee of the defendant carries on certain work for his employer.” Id. at 19.

Ultimately, the Federal Circuit concluded that while no one fact is controlling, taken together, the facts cannot support a finding that Cray has an established place of business in the Eastern District of Texas and therefore, venue cannot exist there under § 1400(b). The Federal Circuit directed the district court on remand to determine where the case should be transferred.

Other Notable Decisions – Week Ending September 22, 2017

NFC Technology, LLC v. Matal, No. 2016-1808 (Fed. Cir. Sept. 20, 1017) (precedential): In NFC Technology, the Federal Circuit reversed and remanded the Patent Trial and Appeal Board’s decision in an inter partes review proceeding, in which the Board rejected NFC’s attempt to antedate an asserted prior art reference and ultimately found the claims unpatentable as obvious. Specifically, the Board determined that NFC had not adequately demonstrated that the inventor of the patent-in-suit had reduced the invention to practice before the asserted prior art’s priority date. For purposes of its analysis below, the Board assumed, but did not decide, that the prototype at issue embodied NFC’s claimed invention. The Board went on to conclude that the third-party chip fabricator’s creation of the prototype, which potentially constituted reduction to practice, did not inure to the inventor’s benefit because NFC’s documentary evidence did not sufficiently corroborate the inventor’s testimony that (1) he conceived the claimed invention and (2) that he communicated the underlying subject matter to the third-party fabricator who produced the prototype. On appeal, the Federal Circuit disagreed with the Board’s ruling on inurement, noting the Board’s misplaced reliance on Woodland Trust v. Flowertree Nursery, Inc., 148 F.3d 1368, 1373 (Fed. Cir. 1998), and pointing out that the relevant time period and presence of documentary evidence in this case are closer to the facts of Loral Fairchild Corp. v. Matsushita Electric, 266 F.3d 1358, 1365 (Fed. Cir. 2001), in which the Court “forgave the inventor’s inability ‘to submit documents showing production test results, considering that the events at issued occurred almost 30 years ago.’” The Federal Circuit emphasized that “[c]orroboration of every factual issue contested by the parties is not a requirement of the law” and concluded that “[o]n these facts, and particularly considering the amount of time that had passed, we determine that [the inventor’s] account was adequately corroborated.” On remand, the Federal Circuit directed the Board to determine whether NFC presented sufficient evidence that the prototype embodied the claimed invention.

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